Crypto basics: Bitcoin, Ethereum, wallets, stablecoins, staking and the risks

The vocabulary

• Cryptocurrency: digital assets secured by cryptography and recorded on a blockchain.
• Blockchain: a shared ledger of transactions maintained by many computers, designed to be hard to alter.
• Bitcoin: the first and largest cryptocurrency, often discussed as a store of value or digital gold.
• Ethereum: a blockchain that runs programmable “smart contracts”; its coin is ether.
• Stablecoin: a token designed to hold a steady value, often $1. Its stability depends on the reserves and the issuer, and some have failed.
• NFT: a unique token recorded on a blockchain, representing ownership of a digital item. Markets for them have been extremely volatile and illiquid.
• DeFi: decentralised finance, lending and trading via smart contracts without a traditional intermediary. Risks include code bugs and hacks.
• Staking: locking coins to help run a network in exchange for rewards. Rewards are not risk-free, and locked coins can fall in value or be hard to withdraw.

Exchanges and wallets

A crypto exchange is a platform to buy, sell and hold crypto. A wallet stores the keys that control your coins. If a third party (an exchange) holds the keys, you depend on them; if you hold your own keys, you are responsible and lost keys mean lost coins. Neither is a bank account, and protections such as deposit insurance generally do not apply. Compare platforms on security record, regulation, fees and withdrawal terms.

Ways to get exposure

• Buy coins on an exchange.
• Own a spot Bitcoin ETF (for example IBIT), which holds Bitcoin in a brokerage-style wrapper.
• Own shares of crypto-related companies such as exchanges or miners, which carry business risk on top of crypto prices.

Is it a good investment?

It is a matter of risk appetite. Crypto prices have swung by large percentages in short periods, including falls of more than half. Unlike a stock, there are no earnings or dividends to anchor a valuation, so price depends on adoption and sentiment. Some investors hold a small slice for diversification or speculation; others prefer none. Predictions of future prices are guesses.

Safety checklist

• Use platforms that are registered with your regulator.
• Turn on two-factor authentication.
• Never share keys or recovery phrases.
• Beware of giveaways, guaranteed returns and “support” messages.
• Keep it to an amount you can afford to lose entirely.

In crypto, the most common way people lose money is not market moves but scams and mistakes. Slow down.